Crash landing Qantas had to have

Just about everyone would have been better off if the $11 billion private equity takeover offer for Qantas in 2007 had succeeded, and Qantas had then quickly gone broke.

The first part of the equation is easy. Qantas' shareholders would have received $5.45 cash per share, and then reinvested it: a 5 per cent annual return would have turned $11 billion into $15.6 billion today.

Qantas' shares on the other hand have lost almost three-quarters of their value since May 2007, when the bid fell just short of securing control.

The second part of the equation, a Qantas collapse, wasn't guaranteed if the takeover succeeded.

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The bidding consortium included Texas Pacific, Canadian private equity outfit Onex, Macquarie Bank and Allco, which had a direct 8 per cent stake and another 27 per cent stake through an affiliate, Allco Investment Partners.

Funding was supplied for a full $11 billion takeover and then, after it was realised that was impossible, for a $7.5 billion acquisition of at least 50 per cent. The loan was pre-crisis style ''covenant-light'' - a margin loan underpinned by what the lenders thought the shares were worth, in effect.

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Qantas' shares were below $2 early in 2009 as the global crisis peaked, however. Allco was in administration, and lenders including Morgan Stanley, Deutsche Bank, Citigroup and Royal Bank of Scotland were stressed. The buyout may well have unravelled - and if it had, it would have brought forward and compressed the episodic reorganisation of Qantas that continues on Thursday when chief executive Alan Joyce details job cuts, asset sales and other changes intended to save $2 billion and qualify Qantas for government assistance.

A Qantas implosion a half-decade ago would have created job losses and huge uncertainty at the time. Financial losses would have been shared by the private equity consortium and its bank syndicate, however, and Qantas would have reorganised and recapitalised itself before foreign government-backed airlines entrenched themselves on the share register of Qantas' big domestic rival, Virgin Australia.

Even if it had not collapsed, the airline would have reorganised itself under private ownership. It just would have done it sooner - and on any scenario the Qantas name was safe.

Qantas was 10th on Skytrax's user-driven best airline list last year: Jetstar was rated the world's second-best low-cost airline, and brand valuation group Brand Finance valued the airline brands at $1.4 billion and $397 million respectively. The combined value of $1.75 billion is two thirds of Qantas' current, atrophied market capitalisation: something to recycle, not discard.

All the things Qantas is doing now could have been done earlier and faster if the private equity consortium had succeeded, and done earliest and most comprehensively if Qantas had crash-landed under the weight of the debt-funded takeover.

Marathon attempts to negotiate new terms and conditions with unions that climaxed on October 29, 2011, with the grounding of the Qantas fleet would have been headed off by an earlier, sharp negotiation that produced an entirely new deal.

Job losses would have been taken into the year when the airline collapsed instead of spreading over a period of years, with this Thursday's announcements the next chapter. The initial shock would have been greater, but jobs in the reconstructed Qantas would have been more secure.

Other changes would have been brought forward. Qantas already knew in 2008, for example, that new long-haul aircraft on order would require less maintenance, and that its Boeing 747 maintenance workload would decline as the 747s were replaced. A reconstruction five years ago would have taken that into account.

The amount of capital the group had sunk into owning terminals and aircraft would have been reviewed, and reduced. Profitable business including Qantas' frequent flyer program would have been considered for spin-outs. It is all still on the agenda.

A Qantas collapse would also have focused minds in Canberra. The Qantas Sale Act's 50 per cent limit on foreign shareholdings and rules forcing Qantas to maintain local maintenance, catering and training facilities would have been reconsidered in the knowledge that ways had to be found to revive the flag-carrier, for example.

The Abbott government is now drafting legislation that would soften the Qantas Sale Act restrictions if it is passed - but with Qantas still in the air financially, albeit flying low, and public opinion split over higher foreign ownership, the political process is fraught. Changes could be vetoed by the Senate even after the Greens lose control in July: the back-stop, a paid-for debt guarantee, is a Band-Aid.

Qantas will get to the end of its reconstruction road. A private equity takeover in 2007 that one way or another led to a total overhaul soon after would have been a short-cut, however.